Impact of the Financial Crisis on Universities and Business Schools

Professor Angus Laing

Dean of Business and Economics – Loughborough University

Chair – Association of Business Schools

Welcome to ‘Laboratory UK’

“Reforms undertaken by the coalition government in the UK following the Browne Report, including the raising of tuition fees – even if contested and controversial – will probably be replicated in other European countries where the gap between the cost and the price of higher education is much wider and the sustainability of the public university system is in doubt.” (Santiago Iñiguez de Onzoño THE 22/12/11)

The private reflections of a reluctant lab rat …

A perfect storm?

Public finances in crisis and reappraisal of role of the state: Withdrawal (or at least reduction) of state funding of higher

education Transferring cost of higher education to ‘consumers’ and creating

demand-led university system

Declining returns on institutional and charity endowments Global market opportunities but also increasing competition:

Immigration, visas and balancing political and economic reality High staff and infrastructure cost structures in western economies English as the academic lingua franca … and Bologna

But no perfect policy responses?

Markets, quasi-markets or central control: Demand-led = consumer interests paramount Planning-led = national interests paramount Role of universities … and business schools?

UK - a kingdom divided: England – fees and ‘managed’ (mis-managed?) quasi-market Scotland – no fees and strong central funding control Wales – fees and strong central planning control

Australia – parallel policy direction: Demand–led and shared payment

If fees … how to price and who pays what

Determining relative costs of teaching across disciplines: Impact of institutional context leading to variability

Determining relative contributions of students and state: Student demand and strategic importance Australian approach:

Student % State %

Law and business 83 17

Engineering 33 66

Science 19 81

And you can’t rely on the banks to bail you out …

Spread in the price of borrowing for UK universities has widened.

“… this has to do with the perceived risks to student demand of higher tuition fees” (Stewart Ward – RBS)

Historically universities have secured low interest rates on the assumption that the government would bail out failing universities.

Uncertainty about the role of the government and regulators in supporting institutions.

Initial evidence of risk in student demand

Limited overall decline: 2.5% compared to 2011/12 4% compared to 2010/11

Variability by institution and discipline: Lower league table universities – decline of up to 25% Vocational subjects – increase of up to 20%

Impact on non-UK students: EU students – decline of around 12%

UK ‘Fee migrants’ – Europe, US and UK ‘branch campuses’

So where does that leave us?

De facto (re)privatisation of the university sector? Increasing divergence in institutional focus?

Stratification of sector - networks and ‘federal’ structures? Disciplinary mix and research concentration?

Student expectations and ‘rights’? Consumerist students (and parents) Changing regulatory systems and information Evolving degree formats and pathways – lifelong learning

Desperately seeking ranking – building market credibility

New financial dependencies

Institutional(ised) dependence on the public purse: Oriented around requirements public policymakers Strong relationships with public sector stakeholders

Ongoing regulatory burden and declining funding: Role of regulation in demand-led system Opting out of government funding/loan schemes

Increasing dependence on non-public funding: Reorientation around requirements of consumers and companies

Requirement for new skills and new relationships

Weaning ourselves off the state - mixed economy of funding

Increasing divergence in institutional funding Key new financial relationships:

Financial institutions – university specific loan schemes Business community – scholarship and programme sponsorship Alumni – scholarships and infrastructure

Danger of pursuit of income –“money making operations with no connection with the rest of the University”

And the state? Research funding? Regulator?

But that’s the university not us

Business schools to a significant degree already operate in this new world: Range of non-public funding relationships Deliver full-time, part-time, corporate programmes etc Familiar with delivering to consumerist students Requisite skills – business development, marketing, alumni

relations

Likely beneficiaries of evolving undergraduate student choice – albeit at expense of other disciplines …

… so you think we can escape …

Major impact will be indirect – the impact of changes on other parts of university: Increased need for cross-subsidisation to preserve discipline mix Stressed relationships - ‘The rich baron, the poor king and poor rival

barons” Place and role of business schools within universities

Need to evolve further to thrive in this brave new world: Threats to income streams – corporate sponsorship and alumni giving Position business schools as’ strategic’ with policy makers –

STEM(M) ‘Age of austerity’ – rationalisation, efficiency and mergers

REM … “Everybody Hurts” or “Shiny Happy People”?

Rationalisation: Programme provision and institutional specialisation/positioning E.g. – LMU “focus on high demand courses such as business”

Efficiency: Models of delivery –technology, staffing mix and lifelong learning Shared services – back office and student facing

Mergers: Reactive to safeguard ‘failing’ institutions (forced marriages?) Proactive to create ‘super’ institutions e.g. Sweden/Netherlands

There are new kids on the block

Mixed economy of provision Non-profit – For profit – Corporate universities/schools National and multi-national universities/schools Standalone schools and university based schools

Emergence of BRIC economy universities/schools Private equity interest in sector – BPP in UK and multiple

emerging PE backed institutions in Asia Looking outside the box – possibilities engendered by the

Wikipedia and Facebook world

Challenging of assumptions about the organisation, operation and financing of universities

Globalised university (and business school) environment undergoing seismic change

Responsibility of business schools to support the academy and limits of cross-subsidisation

But … these are not challenges, they are opportunities waiting to be

discovered … and where have you heard this type of thing before …

So where does that leave us …

From the same people who said “this really won’t hurt” …